Since its launch in December 2018, Gresham House
Energy Storage (GRID) has developed the largest energy storage portfolio in the
country. As we transition from fossil fuel generation to renewables such as
wind and solar, we will increasingly need energy storage solutions due to the
intermittent nature of renewable energy - the wind doesn't always blow and the
sun doesn't shine at night. Currently we use gas fired generation to fill the
gap but we have legislated for net zero carbon emissions by 2050 so the ability
to store excess energy from an ever increasing capacity from renewables will be
essential. As renewable capacity expands, gas-fired power
stations will be required less frequently and they become less profitable to
run. This means that renewables are forcing fossil fuels off the grid.
Interestingly, we have just passed a record of 19
days without coal generation - it is only 3 years that we had our first
coal-free day in the UK. Coal is still used more in the winter months but
currently accounts for just 2% of electricity generation and is due to be completely
retired by 2024.
Results
The company have this week released results for
the full year to end December 2019 (link via Investegate). Net Assets have
increased by 6.5% on a total return basis to 100.8p and share price return is
up 11% as the shares moved to a small premium.
Over the year, the company has acquired nine
storage projects with a total capacity of 174MW. They have a further five
projects in the pipeline with potential additional capacity of 190MW and
looking further ahead, the manager has identified 250MW of additional
pipeline projects.
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50MW Thurcroft Project, S. Yorkshire |
Lead investment manager Ben Guest outlines the
storage imperative in the report:
"The disappearance
of consistent baseload energy is increasing the need for flexible generation -
made possible through battery storage. As the market share of renewable energy
grows, the amount of temporary excess generation will get worse. By our
estimates, instances of more than 10GW of excess power from renewables will
occur frequently within the next four years - requiring 10GW of energy storage.
In ten years, this could reach 30GW.
Industry forecasters are
expecting the rise of renewables will lead to a surge in the volatility of
power prices. With the current penetration of intermittent carbon-free
generation in the UK energy market, we have already reached a tipping point
whereby wholesale energy prices increasingly reach zero or negative levels when
their intermittent generation creates supply in excess of demand. Nuclear
power, whilst carbon-free, is not flexible and cannot provide a mechanism to
balance the system in real time.
This is an excellent
backdrop and financial incentive for energy storage operators to 'buy low' at
times of overgeneration and 'sell high' when demand outstrips supply; either
through participation in the wholesale market or by offering the available
battery capacity to the National Grid through the Balancing Mechanism.
As GB's largest battery
storage business, GRID is exceptionally well positioned to profit from the
expected surge in energy storage demand. By investing in large-scale projects,
the fund benefits from substantial economies of scale. This allows GRID to
invest in large, operational batteries and run sites more efficiently at a
lower cost.
We expect the deployment
of battery storage and intermittent renewable energy generation to evolve in a
complementary way. Now that renewables have reached the tipping point we
refer to above, every additional unit of power generation will cause an
increasing oversupply at certain times while also reducing the market available
for baseload, forcing this type of generation out of existence and creating a
deeper trough in generation when renewables do not generate. Thus, there is an
urgent need for battery storage capacity to catch up to and keep up with
renewable generation installations".
GRID has several streams of revenue which include the wholesale market and National Grid balancing mechanism, Firm Frequency Response based on small-scale changes to the grid's electrical frequency, fixed fees for being on call to deliver power at times of extreme need and Triad payments from National Grid when there is peak demand.
The company has paid a total dividend of 4.5p over the past year as promised and has a target of 7.0p for 2020 but subject to review in relation to Covid-19.
The company has paid a total dividend of 4.5p over the past year as promised and has a target of 7.0p for 2020 but subject to review in relation to Covid-19.
I added this trust to my green portfolio last
December, just before the general election, at the price of 105p. The current price is 97p.
Obviously this is early days for this relatively
new venture. The UK only has around 1GW of storage but this is expected to grow
ten-fold over the next 4 years so there should be plenty of opportunities for
GRID to expand it's business. The focus so far has been batteries but I am
wondering whether they have considered green hydrogen as another option as this
also has lots of storage potential.
Finally, they say the business has not been too
affected by Covid-19 so far however there will be some delays to the
commissioning of projects currently under construction. The share price has dipped 10% to 97p and now
trades at around par to NAV.
So far, so good it seems and one to put back in
the bottom drawer pending further developments and possible new placings later
in the year.
As ever, this article is merely a record of my personal investment decisions and should not be regarded as an endorsement or recommendation - always DYOR!